Full Speed Ahead for Verizon and Cable

The Justice Department has given the go-ahead to a very interesting transaction between Verizon Wireless and the cable companies, with certain conditions. The government’s review followed the template we suggested in the comments we filed with the FCC in February, where the spectrum transaction and the other arrangements were evaluated separately. While the FCC is tasked with reviewing the spectrum transaction, the commercial arrangement was examined by Justice. Commentary by left interest groups focuses on the resale agreements between Verizon Wireless and the cable companies and ignores the much more interesting joint venture to develop intellectual property. This is a strange omission because the joint venture (“JOE LLC”) figures very prominently in the DoJ review, with its own set of conditions attached.

The long and short of the transaction is:

Verizon will be allowed to purchase the licenses to 20 MHz of nice AWS spectrum currently held by the cable companies, except in markets where Verizon seems to be well provisioned for the time being and T-Mobile is less well provisioned; in these cases, T-Mobile will gain licenses.

Cable and Verizon Wireless will be able to resell and bundle each other’s services, except in areas where Verizon Telecom offers DSL or FiOS broadband. The original agreement required VW to offer cable on the same terms as VT broadband in these territories, but that struck DoJ as too sweet a deal for cable and enraged the critics. In reality, the condition wasn’t especially anti-competitive unless there’s a sudden shift in broadband buying to company cellular stores. The downside of the condition is the potential to discourage cord-cutters from adding a wired broadband option to their cellular plans.

Verizon and the cable companies will be allowed to jointly develop intellectual property pertaining to networking, but only for five years. At that time, all the IPR they’ve developed will be non-exclusively licensed to all of them, and they’ll all be able to sub-license as they see fit.

The left-wing rage over the resale agreements is hard to fathom given that the technology agreement has so much more significance. I analyzed a series of natural and undeveloped opportunities to improve the interface between cable and LTE in a research paper on the next Internet a couple of years ago, and I discovered a great curiosity among both the cellular people and the broadband people to push in that direction. The current Internet runs out of a steam in low capacity situations where people want to use real-time, communication-oriented apps and cellular becomes challenged when spectrum is over-worked. But improving the cellular/cable interface allows for these problems to be resolved for a fraction of the cost of resolving them within the Internet’s present structure. We may see great things from the joint venture.

The response to the DoJ’s conditions has generally been limited to the resale side. Free Press is still not happy with the “structure” of the broadband market:

Limiting the joint-marketing agreements between Verizon and the cable companies to four years is a start. But this concession doesn’t deal with the deep structural problems in the market for at-home broadband service. There is still no meaningful competition — and that will mean higher prices for everyone.

These deals are very complex and the proposed settlement includes many individual conditions designed to alleviate specific competitive harms, but on a general level the DOJ and FCC seem to be acknowledging that the US’s policies for broadband competition have failed. Especially since the 1996 Telecommunications Act, Congress and the FCC have hoped that direct competition between telephone and cable companies’ wireline broadband services would protect consumers, drive down prices, and encourage new deployment.

And the always-pessimistic Susan Crawford sees the end of competition as well, which she blames on President Bush as a good partisan should:

After the Bush-era Commission decided to unilaterally deregulate utility communications a few years ago, consolidation and harvesting by the companies involved has accelerated. In the “you take wireless, we’ll take wired” world in America, in which Verizon and AT&T stick to their side of the ring and Comcast and Time Warner and the other local cable monopolies stay on theirs, the SpectrumCo transaction is an outcome, not a cause, of the primitive approach to communications that characterizes this country.

The critics are overlooking a fact that they know well: Mobile networks are fundamentally different from fixed-location wired ones, so the market was already divided between these two camps in much the same way that the markets for bicycles and desks are divided. No fundamental realities are going to change simply by permitting cable and VW to sell bundles that include the others’ services.

The effective, long-term sustainability of cable and cellular broadband for each other will probably be enhanced by the technologies that come out of the joint venture, however, and that’s the thing to keep an eye on. Of course, there are some fringe, rural settings where LTE is a better bet than wired broadband, and it would be understandable for the watchdogs to wring their hands a bit if this kind of competition were to be eroded by joint marketing.

But the reality is that most of the rural broadband that’s still too slow to compete with cellular broadband is provided by subsidized RLECs who aren’t parties to the deal in the first place. And even more significantly, there are no barriers in the deal to VW developing the faster and better LTE that will make cable contracts unnecessary.

So what we have here is a very thorough analysis by the Justice Department that comes to a very sound conclusion and a lot of poorly-reasoned objections from groups that aren’t even willing to admit that broadband in the United States is moving in the right direction.

So what else is new?

About the author

Richard Bennett is an ITIF Senior Research Fellow specializing in broadband networking and Internet policy. He has a 30 year background in network engineering and standards. He was vice-chair of the IEEE 802.3 task group that devised the original Ethernet over Twisted Pair standard, and has contributed to Wi-Fi standards for fifteen years. He was active in OSI, the instigator of RFC 1001, and founder, along with Bob Metcalfe, of the Open Token Foundation, the first network industry alliance to operate an interoperability lab. He has worked for leading applied research labs, where portions of his work were underwritten by DARPA. Richard is also the inventor of four networking patents and a member of the BITAG Technical Working Group.

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